Flaherty Delivers Tax-Lite Budget

by Mike Godfrey, Tax-News.com, Washington

08 March 2010

Canadian Finance Minister Jim Flaherty resisted the temptation to increase income tax or defer planned cuts in the rate of corporate tax in tabling the 2010 budget on March 4, announcing a deficit reduction package based largely on the removal of economic stimulus measures.

According to Flaherty, his 2010 “jobs and growth budget,” will be realized by achieving three key objectives:

Firstly, new stimulus measures, worth CAD19bn (USD18.4bn):

• CAD3.2bn in personal income tax relief;
• Over CAD4bn in additional benefits, training opportunities and Employment Insurance premium relief to help unemployed Canadians;
• CAD7.7bn in infrastructure stimulus to create jobs;
• CAD1.9bn towards enhancing the Canadian economy; and
• CAD2.2bn to support industries and communities.

This is to be complemented by individual measures at municipal level, to the tune of a further CAD6bn, Flaherty explained.

The second feature of the government’s budget, as agreed with Canada’s opposition parties, will focus on improving the Canadian economy, harnessing innovation, and through this, protecting and creating jobs. Measures will include:

• Over CAD100m to protect jobs by extending the maximum length for work-sharing agreements;
• CAD108m to support young workers through internships and skills development to help them find jobs and to support Aboriginal students;
• Over CAD600m to help develop and attract talented people, to strengthen Canada's capacity for world-leading research and development, and to improve the commercialization of research;
• Creating a tariff-free zone for manufacturers, by eliminating all remaining tariffs in Canada on machinery and equipment and goods imported for further manufacturing in Canada;
• Establishing a Red Tape Reduction Commission to reduce paperwork for businesses; and
• Measures to support investment in clean energy generation.

Lastly, the Budget commits to reigning in the country’s deficit, beginning when the economy is on a steady footing. This will include the removal of stimulus, currently being provided under the Economic Action Plan on a staggered basis; retrenchment through targeted spending reductions, worth CAD17.6bn over five years; and a comprehensive review of government administrative functions and overhead costs to identify additional savings and improve service delivery.

Flaherty underscored that the budget would not increase taxation at all, and major transfers for health care, education and pensioners would be sustained at current levels.

Flaherty projects that, as a result of the expiration of the Economic Action Plan and the measures in this Budget, the deficit is to decline by almost a half over the next two years to CAD27.6bn (USD26.7bn) in 2011–12; by two-thirds to CAD17.5bn (USD17bn) in 2012–13; and will be CAD1.8bn (USD1.75bn) in 2014–15.

The budget must receive approval by at least one of Canada’s opposition parties in order to be enacted.

Recommended